Report: Small Business Credit Card Use Creates Jobs

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.

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Small-business credit card use creates jobs both directly and indirectly, giving businesses a beneficial financial "cushion" against cash shortages, a new study finds.

The increase in small-business credit card use from 2003 to 2008 "contributed directly to the creation of 592,000 small business jobs and an additional one million direct or induced jobs throughout the U.S. economy," according to the report, which was conducted for the American Bankers Association by Keybridge Research, an international economics and public policy consulting firm. The total beneficial impact: 1.6 million jobs.

It's perhaps not surprising when you consider that according to the Federal Reserve 83 percent of small businesses in 2009 used business and personal credit cards, which essentially amount to short-terms loans. (Credit cards are a heavily studied subject: Yet another report – this one from the National Federation of Independent Business – says in 2009, 83 percent of businesses with 50 employees or fewer use credit cards, and 64 percent of them use business credit cards as opposed to personal ones. That's compared to 70 percent of small businesses using cards in 1998, and just 37 percent using business cards rather than personal ones.)

The Keybridge report also found a correlation between start-ups' use of credit cards and a firm's revenue growth. Each one percent increase in credit card use is associated with a .11 percent in firm revenue. Translation: "On average, an extra $1,000 of credit card use would be associated with about a $5,500 increase in firm revenue," says the report.

The news comes as card issuers again are courting small businesses, historically big card spenders who in recent years had become too risky to back. Mintel Comperemedia, a company that tracks credit card offerings by mail, reports that its panel of 1,200 small business owners received, on average, 2.8 mail offers of new credit cards in the first quarter of 2010. That's up from 2.3 offers in the fourth quarter of 2009.

Mike Nagle, general manager of Chase's Ink credit card, told CreditCards.com that the company saw "great opportunity" in small business. "It's a large market. There are 27 million small businesses with up to $5 trillion a year in spending. The majority of that spending still happens on a check. There's a great opportunity to provide innovation."

The Keybridge study also urged Congress to beware of proposals that would restrict access to credit cards – one question lately has been whether the protections in the Truth in Lending Act (such as restricting issuers' ability to adjust interest rates) should apply to small business cards as well as consumer ones. A recent Federal Reserve report concluded that such a move's benefits would "outweigh the potential risk of increased cost and reduced credit card availability for small businesses."